Bert Colijn, Senior Economist at ING, notes that the industrial output declined by -1.1% MoM in July, indicating that improved domestic demand is not lifting Eurozone industry as external uncertainty has increased.

Key Quotes

“Industrial production disappointed in July with decreases of -1.1% MoM and -0.5% YoY. While domestic demand is improving moderately in the Eurozone, it is just the service sector profiting as the weak external environment is hurting industrial output. Italy saw modest growth, but all other large economies saw production decrease in July. Germany even saw a steep decline of 1.9% in July, with exports declining significantly as well. That signals that the weak external environment caused by Brexit and other geopolitical uncertainty is weighing on Eurozone industry.

The production environment remains weak as capacity utilization is still below the Q1 peak and new orders have been on a declining trend over recent months. The Economic Sentiment Indicator even showed that new orders dropped the most since February 2009 in August, which suggests that more weakness could be ahead for Eurozone industry in the autumn months.

These disappointing figures about Eurozone industry arrived on the day that European Commission President Juncker gave his State of the European Union speech. He announced a doubling in funding and duration of the “Juncker investment plan”. While the question remains whether this plan would be effective even with elevated funds, it does seem that more of a fiscal push could be welcome for the struggling Eurozone economy. Uncertainty surrounding the political environment is likely to remain for a while to come, which will likely slow growth from the already meager second quarter rate of 0.3%.”